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Are the ASX banks still a good choice for dividend income?

The talk of the ASX town this year has been the ASX bank stocks and the sustainability of their high-yielding dividends. Our big four banks have long enjoyed a reputation for having some of the largest and most consistent dividends on the ASX – but that reputation has been severely dented in 2019.

First it was National Australia Bank Ltd (ASX: NAB). Back in May, NAB decided to trim its generous 99 cents per share interim dividend back to 86 cents. Tellingly, this new rate will be kept for the bank’s final dividend to be paid out next month.

Next came Australia and New Zealand Banking Group (ASX: ANZ) last month, which kept its payout steady, but trimmed the level of franking its shareholders would receive from 100% to 70% going forward – a dividend cut in all but name.

Not to be upstaged, Westpac Banking Corp (ASX: WBC) was next in line. The following week, Westapc announced its generous dividend would be pared back 15% to 80 cents per share (albeit still fully-franked). This was announced in conjunction with a fresh capital raise, so needless to say investors weren’t too impressed.

Commonwealth Bank of Australia (ASX: CBA) seems to be dividend investors’ new best friend, having the crown of the only major not to cut its shareholder income this year. However, with the current ultra-low interest rate environment, even CBA’s profitability will likely get squeezed before too long. If this happens, a dividend cut could well be on the cards in 2020.

Are things as bad as they seem?

I don’t actually think they are. Although no shareholder likes to see dividends being cut, the fact remains that ANZ, NAB, Westpac and CBA all still offer dividends of over 5% – substantially more than most ASX shares out there (and certainly a lot more than a bank term deposit these days).

Even if all of the banks (hypothetically) reduce their dividend by a third, their yields would still be very competitive. Therefore I still think all four are reasonable income stocks to own for the foreseeable future. However, I do think some diversity is also prudent and necessary. 

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Motley Fool contributor Sebastian Bowen owns shares of National Australia Bank Limited. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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